Negative equity question

Numenor

!!!!!!? wrote: »

If the bank could somehow magically know that you were going to lose your job, you wouldn't get the mortgage though.

If they decide to loan you the money, they take the risk and assume that you won't lose your job and default - but price the possibility of default into the loan as insurance.

That's if they are doing their job properly of course. Most of the problem we are now in stems from the fact that lenders often didn't do due diligence and as a result made too many risky loans which are now turning toxic.

You are of course right on all three points. But my point (which is actually slightly different to the OP's) is that LTV isn't everything, and the risk factors they consider have been shown not to be reliable enough. The banks don't have much of an idea whether you'll lose your job because they don't go into as much detail as they used to years ago.

In my case for example, my partner and I took out a mortgage at 2.5x our combined salary. They would have lent us 4x, but we borrowed less because we wanted to make sure that we could still pay if interest rates doubled. Now, my salary has increased by 50%, meaning the original loan was 2x our current combined salary. Our outgoings have also reduced since then. But our 10% deposit has been pretty much swallowed up by price falls.

In this scenario, why shouldn't a human being at the bank make an individual decision if we wanted to move up to a bigger house after taking the time to find out:
- that we have plenty of money coming in each month
- that we don't waste money on stuff with nothing to show for it
- that we know how to budget
- that we show very responsible use of credit cards (always pay off)
- that neither of us are too proud to take a temp job or a significant pay cut if we lost ours
- that the companies we work for are based in very stable industries which will almost certaily be unaffected by economic fluctuations.

But in reality, Computer Says No, because we'd be borrowing 100% LTV even though it'd only be at 2.5 - 3x our salaries and we've been overpaying our current loan by a considerable margin (and could probably still overpay the new loan). The fact that as individuals we are pretty low risk is overlooked because we don't tick all the arbitrary 'right boxes'.

EDIT: I'd like to point out that this scenario, whilst accurate in the details, is not being considered currently. I think we'd be throwing our financial prudence on the bonfire to try and buy a bigger house in the current climate. I'm actually almost regretting buying one 3 years ago.

Really2

The_White_Horse wrote: »

Banks know that values go up and down. they agreed the mortgage at 90%. Its their tough luck it now happens to be 110%.

It's not though it is yours they still want repayment in full.

Just go to the bank and see what they say I think it is safer for my forehead if you do that.

The_White_Horse

Really2 wrote: »

Sorry not sounding of just trying to save the guy/girl from an embaressing situation.
There is no 100-110% products and the market is falling it a waste of their own time.
But still I supose If he wants to know for certain he/she might as well do it.

i have no reason to think that the banks would reject the idea. I think it is because they are myopic and cannot see the woods for the trees.

they have rules so they can deal with the masses.

if you could genuinely speak to someone with power and authority, they may well agree (depending on your individual circumstances).

otherwise it will be a case of "computer says no"

Wickedkitten

The_White_Horse wrote: »

i might, depending on the reason.

if the 1000 loan was secured on something worth 1000 that is now worth 800 and therefore the loanee is 200 short, I may extend them more credit to say, 2000 provided they can give me security up to 1800, as I am still owed the 200.

If they repay me, I will make more money.

therefore, it depends on how risky I see the person.

Right, now using the housing equation.

They loaned you 225k in a time where the market was spiralling upward. However the market now is dropping like a stone. How much of that 225k do you think they would get back if they had to repossess the house and sell it at auction in a falling market?

Generali

The_White_Horse wrote: »

i am not saying the bank should give customers 110% mortgages from the off. I am saying that, if a good customer, has been sensible, and finds themselves in NE. Why should the bank not assist with another "110%" mortgage, if the customer already has, in effect, a 110% mortgage?

This would not be suitable for sub-prime, or even some prime, just the highest of the high in respect og good credit history ie no defaults EVER.

Assuming you're not trolling (which from where I'm sitting is a big assumption) if you're in negative equity then by definition you're sub prime from the bank's point of view!

How can you be anything else? You have a secured loan and the value of the asset it's secured against is less than the value of the loan. Banks lend mortgages against property and unsecured loans where there is no security. Unsecured loans are more risky so they attract a higher level of interest.

Most secured loans include a term sometimes known as a margin call whereby if the value of the security drops below a certain proportion of the value of the loan, more cash or asset has to be put into the deal. Mortgages are an exception but they're not going to change the terms for you.

Out of interest, why don't you put the moving costs into paying down your negative equity? That way you could get out of your bad position faster.

Really2

Numenor wrote: »

But in reality, Computer Says No, because we'd be borrowing 100% LTV even though it'd only be at 2.5 - 3x our salaries and we've been overpaying our current loan by a considerable margin (and could probably still overpay the new loan). The fact that as individuals we are pretty low risk is overlooked because we don't tick all the arbitrary 'right boxes'.

But if you keep overpaying you could get to 5% or 10% equity you would then tick the boxes. (for some lenders)

It is the same as if someone wanted to buy a house with a 100% mortgage on 2.5% income now they just wont get a mortgage.

Numenor

Really2 wrote: »

But if you keep overpaying you could get to 5% or 10% equity you would then tick the boxes. (for some lenders)

It is the same as if someone wanted to buy a house with a 100% mortgage on 2.5% income now they just wont get a mortgage.

Indeed, and we might just survive, assuming our house doesn't lose too much value.

I really think there should be a sliding scale, influenced by various risk factors, taking into account both multiples and LTV, rather than just hard-and-fast limits. For example, if you had a salary of £25K you could borrow say £100K at 85% LTV. Or £90K at 90% LTV, or £80K at 95%, or £70K at 100%, and so on.

funkyfreddy9k

sounds like someone needs to wake up and smell the coffee!

If you hadnt noticed, the banks are in serious smelly stuff. The rules since you took out your current mortgage have changed. You need to accept that and get over it.

Coupled with the fact house prices are likely to continue to fall, no one is seriously going to lend you more than the value the loan is secured against today that alone the value of it tomorrow!

Numenor

I hope you were directing that at the OP, because a few posts up I stated quite clearly that I thought I'd be mad to try buying my next house in the current climate.

The_White_Horse

well, i have been discussing with my banks. My bog standard bank (spoke to someone who didn't even understand the question) gave me a "computer says no" type answer.

My private bank seems to think that something can be arranged, and I have a meeting next week with my mortgage man.

See, if people are sensible, sensible things happen.

remember, If you're gonna ride

don't ride the white horse.